Out of Bounds

Fore!

Welcome to the 2016 Dean Foods Tournament of Whatever’s the Opposite of Champions. In what’s hoped to be the first and last of this classless classic, the nation’s largest processor of fluid milk features the most loathsome lineup of crooked CEOs, gluttonous gamblers, and avaricious athletes ever assembled for an event.

First out of the box is one Thomas Davis, former Chairman of Dean, all-around bad guy, and even worse gambler. Over his head in casino debt and back taxes, Davis distributed highly profitable tips about his company’s earnings and other market-moving news in exchange for cash.

In 1987, Ivan Boesky paid $100 million to the SEC and was sentenced to 3½ years in prison.

Next to the tee, the infamous William Walters, allegedly one of the most successful sports bettors in the world. Often indicted but never convicted of illegal bookmaking, “Billy” repeatedly called his Las Vegas broker to buy tens of millions of dollars in Dean Foods shares after phone calls or meetings with his godawful golfing buddy Davis.

In 2004, Martha Stewart was fined $30,000 and sentenced to 10 months in jail

Last and lamentably least is golf star Phil Mickelson. Authorities say “Lefty” owed gambling debt to Walters and repaid a divot’s worth of it with $931,000 in profits he mysteriously gained from Dean Foods trading. Lawyers for number eight on the list of the world’s highest-paid athletes said the golfer “did not engage in any wrongdoing.”

In 2006, Jeffrey Skilling was sentenced to 24 years and fined $45 million.

Maybe not. But he sure as hell reminded us that the stock market, like any decent golf course, is hardly a level playing field. And neither, apparently, is enforcement.

In June, Phil Mickelson will be playing the Memorial Tournament at Muirfield Village

What the markets have been doing…

Amid what appeared to be a Fed-orchestrated “messaging offensive” intended to brace the market for an upcoming rate hike, stocks drifted mostly downward for the period. On the whole, the technology-laden NASDAQ outperformed its peers and smaller-cap benchmarks outperformed their large-cap counterparts. Any index containing Apple got a quick boost from Berkshire Hathaway’s $1 billion stock purchase, only to give it back the next day.

A good bit of favorable economic data was also supportive of an upcoming rate hike. Reports reflected industrial production rebounding, housing starts and permits both rising, and consumer prices increasing at a solid pace.

Index

Friday’s Close

Two-Week Point Change

Year-to-Date Change

DJIA

17500.94

-(239.69)

+0.44%

S&P 500

2052.32

-(4.82)

+0.41%

NASDAQ

4769.56

-(33.40)

-(4.75)%

Treasury yields rose across the period on the Fed’s hike messaging and the generally positive economic news. Investment-grades moved in similar fashion, though spreads widened toward the end. High-yield corporates were mostly flat. Municipal bonds also tracked Treasuries, as historically low yields have crimped demand. The biggest muni deal of the period was the issuance of $2.5 billion in bonds supporting the expansion of LaGuardia Airport in New York..

Fixed Income

Yield

Two-Week Change

2-Year Treasury

0.90%

+0.19%

10-Year Treasury

1.93%

+0.18%

30-Year Treasury

2.62%

+0.01%

Bloomberg Corporate Bond Index

3.15%

+0.12%

30-Year Municipal Bonds

2.46%

-(0.01)%

Got Stock?…

Only about one-quarter of U.S. corporate stock is held in taxable accounts these days, down from more than four-fifths in 1965.

Quote of the Week…

“Never retire. If you work forever, you can live forever.”– Byron Wein, vice chairman of Blackstone Advisory Partners and all-around good guy

Number of the Week…

$70 billion

The face value of Puerto Rico’s debt.

What Fund Architects is doing…

Not a whole lot good happening in the markets this period. Our new positions in Global Infrastructure and Global Real Estate were down in line with the broader indexes, while our outsized position in High Yield Corporates continued to work out well.

Overall, we’re pleased with performance of the Fund Architect Portfolios this year. Depending on the model, we’re at least tracking our benchmarks or slightly outperforming. Which means we’re doing relatively well against the Portfolios’ peer groups.

The views in this commentary are those of Fund Architects. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this commentary, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any discussion or information provided here serves as the receipt of, or as a substitute for, personalized investment advice from Fund Architects or any other investment professional. The information contained within this commentary should not be the sole determining factor for making investment decisions. To the extent that you have any questions regarding the applicability of any specific issue discussed to your individual situation, you are encouraged to consult with Fund Architects. Information pertaining to Fund Architects advisory operations, services, and fees is set forth in Fund Architect current disclosure statement, a copy of which is available upon request. Fund Architects, LLC is an SEC Registered Investment Advisory Firm.